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Repairing obligations - a matter of contract?

The introduction of new Model Clauses, which took effect in England on 1 October 2015, has shone the spotlight on repair and maintenance obligations within agricultural tenancies. However it is important to remember that the Model Clauses will not override obligations set out within a written tenancy agreement, even if that agreement is inconsistent with them. The parties have complete freedom of contract in that regard. This contractual freedom has always been rather at odds with the underlying policy and existence of the Model Clauses.

When they were first enacted in 1948, there was a desire to see a standardisation across the industry in terms of repair and maintenance provision, with the respective obligations split between the parties in a manner which was thought fair at the time. They have now been overhauled and replaced twice since then, to take account of changing circumstances.

So what happens if over time, express contractual provisions contained within a written agreement become inappropriate in a particular landlord and tenant relationship? Or what if the contractual repairing provisions have been largely ignored by the parties, so the agreement does not reflect what actually happens on the ground?

In those circumstances, section 8 of the Agricultural Holdings Act 1986 (“1986 Act”) steps in to assist either party. It is a very rarely used and little known tool, but we have had reason to consider it in relation to a number of cases this year and it is a provision which deserves some limelight, particularly given the current focus on repairing obligations in the context of the 1986 Act.

Model or Not?

Section 8 is relevant where the terms of a written tenancy agreement are inconsistent with the provision made within the Model Clauses. There are two pre-conditions:

a written tenancy agreement;

which effects substantial modifications to the Model Clauses.

Assuming those conditions are satisfied, either party to the agreement has the ability to request a variation of the terms of the tenancy as regards the maintenance, repair and insurance of fixed equipment “so as to bring them into conformity with the model clauses”. That is, they can argue that the Model Clauses should apply in place of the existing contractual provisions even though the parties originally chose not to adopt them.

If a consensual agreement is not reached, the issue can be referred to arbitration (or third party determination in England) under section 8(2). The scope of the arbitrator’s powers is laid down in section 8(3). It provides as follows

“the arbitrator [or third party] shall consider whether (disregarding the rent payable for the holding) the terms referred to arbitration are justifiable having regard to the circumstances of the holding and of the landlord and the tenant, and, if he determines that they are not so justifiable, he may by his award vary them in such manner as appears to him reasonable and just between the landlord and tenant.”

It should be noted that the arbitrator’s discretion is a wide one. He is considering the real circumstances of the actual parties and the holding, disregarding only the rent currently payable. Arguably, in considering the parties’ circumstances, he could have regard to their respective financial circumstances if evidence is adduced by the parties on that point.

There is no obligation on the arbitrator to vary the terms; it is a matter for his discretion. He must determine what terms are justifiable in the circumstances. He may therefore decline to make any change at all, or he may decide that the Model Clauses should be imposed in their entirety. Alternatively, he may apply the Model Clauses in part, varied to take account of the particular circumstances of the parties and the individual holding.

The arbitrator’s decision will take effect as a variation to the existing tenancy from the date of the Award or from such later date as the arbitrator may specify.

Process

No formal notice or written request is required to initiate the section 8 process, although it is obviously preferable to record the request in writing.

Nor are any time limits imposed for referring the matter to arbitration or for appointing an arbitrator thereafter. Consequently the procedure will need to be driven by the requesting party.

Rent Review

Pursuant to section 8(4), the arbitrator is able to vary the rent of the holding if it is equitable to do so by reason of the terms of his award.

Any rental variation under section 8(4) will not impact the three year rent review cycle. Unlike a comprehensive section 12 review, a rental adjustment under section 8(4) will be far narrower in scope, being limited only to any rental adjustment necessary to reflect the transfer of repairing liability between the parties.

Section 9

The provisions of section 9 have been another talking point recently in the context of the transfer of liability for electrical systems under the new 2015 Model Clauses.

Section 9 is also relevant if a liability is transferred between the parties under the section 8 process. In those circumstances, the newly liable party can claim compensation under section 9 for any failure by the previously liable party to comply with their repairing obligations prior to the date of transfer. Compensation is assessed in accordance with the provisions of sections 9 and 71 of the 1986 Act.

Conclusion

It remains to be seen whether the introduction of the 2015 Model Clauses leads to a wider review of the repair and maintenance provision made within 1986 Act tenancy agreements. If they do have that effect, section 8 could be a very useful negotiating tool in seeking to ensure that the terms of your particular tenancy are appropriate to modern standards and reflect what continue to be recognised as the industry benchmark.

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